Exhibit 10.7


 


SECOND
AMENDMENT


 


SECOND
AMENDMENT, dated as of July 2, 2008 (this “Amendment”), to the
CREDIT AGREEMENT, dated as of June 12, 2006 (as amended on March 21,
2007 and as further amended, supplemented or otherwise modified from time to
time, the “Credit Agreement”), by and among CELLU PAPER HOLDINGS, INC.,
CELLU TISSUE HOLDINGS, INC. (the “Borrower”), INTERLAKE ACQUISITION
CORPORATION LIMITED, the Loan Guarantors party thereto, the lenders party
thereto (the “Lenders”), JPMORGAN CHASE BANK, N.A., as US Administrative
Agent (in such capacity, the “Administrative Agent”) and JPMORGAN CHASE
BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent (the “Canadian
Administrative Agent”).


 


RECITALS


 


A.            WHEREAS, the Borrower intends to acquire certain assets of Atlantic and to
transfer such assets to the Assetcos, and, in connection with such acquisition
and the financing thereof, the Borrower is requesting that the Lenders agree to
certain amendments relating to, and provide certain waivers under, the Credit
Agreement; and


 


B.            WHEREAS, the Lenders are willing to agree to such amendments and provide
such waivers, in each case subject to the terms and conditions set forth
herein.


 


NOW, THEREFORE, in
consideration of the foregoing Recitals and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:


 


AGREEMENT


 


1.             Defined Terms.  Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.


 


2.             Amendments to Section 1.01.  Section 1.01 of
the Credit Agreement is hereby amended by:


 


(a) adding the following definitions in the appropriate
alphabetical order:


 


“Assetco” means each
of Hauppauge and Thomaston, together the “Assetcos”.


 


“Atlantic”
means, collectively, Atlantic Paper & Foil Corp. of N.Y., Atlantic
Lakeside Properties, LLC, Atlantic Paper & Foil, LLC, Atlantic Paper &
Foil of Georgia, LLC and Consumer Licensing Corporation.


 


“Atlantic
Acquisition” means (i) the acquisition of certain assets of Atlantic
by the Borrower pursuant to the Atlantic Acquisition Agreement and (ii) the
transfer of such assets to the Assetcos pursuant to the Atlantic Asset Transfer
Agreements.


 


“Atlantic
Acquisition Agreement” means the Asset Purchase Agreement, dated as of July 2,
2008, among the Borrower and Atlantic.


 

















 


 “Atlantic Acquisition Documentation”
means, collectively, the Atlantic Acquisition Agreement and the Atlantic Asset
Transfer Agreements.


 


“Atlantic
Asset Transfer Agreements” means, collectively, (i) the Assignment of
Purchase Agreement dated July 2, 2008 between the Borrower and Hauppauge, (ii) the
Assignment of Purchase Agreement dated July 2, 2008 between the Borrower
and Thomaston, (iii) the Bill of Sale and Conveyance dated July 2,
2008 between Atlantic and Hauppauge, (iv) the Bill of Sale and Conveyance
dated July 2, 2008 between Atlantic and Thomaston, (v) the Assignment
and Assumption Agreement dated July 2, 2008 between Atlantic and
Hauppauge, (vi) the Assignment and Assumption Agreement dated July 2,
2008 between Atlantic and Thomaston, (vii) the Assignment of Marks dated July 2,
2008 between Atlantic Paper & Foil, LLC and Hauppauge and (viii) the
Assignment of Marks dated July 2, 2008 between Consumer Licensing
Corporation and Hauppauge.


 


“Atlantic
Collateral Access Agreements” means, collectively, (i) the Collateral
Access Agreement dated July 2, 2008 between Atlantic Paper & Foil Corp. of N.Y. and the Administrative Agent
in relation to the real property located at 325 Kennedy Drive,
Hauppauge, New York 11788, (ii) the Collateral Access Agreement dated July 2,
2008 between Atlantic Long Island Properties, Inc. and the Administrative
Agent in relation to the real property located at 50 Gilpin Avenue, Hauppauge,
New York 11788, (iii) the Collateral Access Agreement dated July 2,
2008 between Atlantic Lakeside Properties, LLC and the Administrative Agent in
relation to the property located at 1201 Barnesville Street, Thomaston, Georgia
30286 and (iv) the Collateral Access Agreement dated July 2, 2008
between Haugland Group, LLC and the
Administrative Agent in relation to the property located at 100 Marcus
Boulevard, Hauppauge, New York.


 


“Atlantic
Seller Note” means the 12% subordinated unsecured note due 2011 issued by
the Borrower to Atlantic Paper & Foil Corp. of N.Y.


 


“Hauppauge”
means Cellu-Tissue Hauppauge, LLC.


 


“Thomaston”
means Cellu-Tissue Thomaston, LLC.


 


(b) in the definition of “Additional Senior Secured
Notes”, replace the words “the CityForest Acquisition” with the words “each
of the CityForest Acquisition and the Atlantic Acquisition”.


 


(c) in the definition of “EBITDA”, (i) deleting
the word “and” at the end of clause (a)(viii) and substituting a comma
therefor, (ii) inserting the word “and” at the end of clause (a)(ix) and
(iii) inserting the following as a new clause (a)(x) in the
appropriate numerical order:


 


“non-recurring fees, cash charges
and other cash expenses made or incurred in connection with the Atlantic
Acquisition (and the related transactions) or any offering (whether in a public
or private sale) of Equity Interests of the US Borrower (or to the extent the
net cash proceeds thereof are contributed to the US Borrower, of any direct or
indirect parent of the US Borrower), Permitted Investment, acquisition,
disposition, recapitalization or incurrence of Indebtedness permitted under
this Agreement (including a refinancing thereof), in each case, whether or not
successful”.


 


(d) in the definition of “Eligible Accounts”,
adding the following sentence at the end thereof:


 


“It is understood and agreed that Accounts of
Atlantic shall only be eligible for inclusion as “Eligible Accounts” if agreed
to by the Administrative Agent in its Permitted 


 


2

















 


Discretion (which in any event shall not occur
earlier than the satisfaction of all requirements of clause (d) in the
definition of Permitted Acquisition).”


 


(e) in the definition of “Eligible Inventory”,
adding the following sentence at the end thereof:


 


“It is understood and agreed that Inventory of
Atlantic shall only be eligible for inclusion as “Eligible Inventory” if agreed
to by the Administrative Agent in its Permitted Discretion (which in any event
shall not occur earlier than the satisfaction of all requirements of clause (d) in
the definition of Permitted Acquisition).”


 


(f) in the definition of “Note Purchase Agreement”,
replace the words “means the Note Purchase Agreement, dated March 21,
2007, between the Borrower and Wingate Capital Ltd.” with the words “means,
collectively, (a) the Note Purchase Agreement, dated March 21, 2007,
between the Borrower and Wingate Capital Ltd. and (b) the Note Purchase
Agreements, dated July 2, 2008 (the “Atlantic Note Purchase Agreements”),
between the Borrower and
each of (i) GMAM Investment Funds Trust II, for the account of the Promark
Alternative High Yield Bond Fund (Account No. 7M2E), GMAM Investment Funds
Trust, General Motors Welfare Benefit Trust (VEBA), GMAM Investment Funds Trust
II for the account of the Promark Alternative High Yield Bond Fund (Account No. 7MWD),
DDJ High Yield Fund, Multi-Style, Multi-Manager Funds PLC The Global Strategic
Yield Fund (f/k/a Multi-Style, Multi-Manager Funds PLC The Global High Yield
Fund, DDJ Capital Management Group Trust, Stichting Pensioenfonds Hoogovens,
Caterpillar Inc. Master Retirement Trust, J.C. Penney Corporation, Inc.
Pension Plan Trust, Stichting Bewaarder Interpolis Pensioenen Global High Yield
Pool, DDJ/Ontario OS Investment Sub II, Ltd. and Stichting Pensioenfonds Metaal
en Techniek, (ii) Claren Road Credit Master Fund, Ltd. and (iii) UBS
High Yield Relationship Fund, a series of the UBS Relationship Funds.


 


(g) in the definition of “Permitted Acquisition”,
in clause (e)(i) replace the words “(other than the CityForest
Acquisition)” with the words “(other than the CityForest Acquisition and the
Atlantic Acquisition)” and in clause (e)(ii) replace the words “(other
than the CityForest Acquisition)” with the words “(other than the CityForest
Acquisition and the Atlantic Acquisition)”;


 


(h) in the definition of “US Commitment”,
deleting the amount “US$37,000,000” and substituting therefor the amount “US$57,000,000.”


 


3.             Amendment to Section 6.01.  Section 6.01 of
the Credit Agreement is hereby amended by (i) deleting the word “and” from
the end of clause (n), (ii) deleting the amount “US$20,265,000”  in clause (o)(i)(x) and substituting
therefor the amount “US$60,265,000”, (iii) deleting the period from the
end of clause (o) and substituting therefor a semicolon and the word “and”
thereafter and (iv) adding the following at the end thereof:


 


“(p) Indebtedness in respect of the Atlantic
Seller Note in an aggregate principal amount not to exceed US$6,300,000.”


 


4.             Amendment to Section 6.03.  Section 6.03(a) of
the Credit Agreement is hereby amended by (i) deleting the word “and”
immediately preceding the words “the CityForest Conversion” in clause (ii) of
the proviso thereof and substituting therefor a comma and (ii) adding the
words “and the Atlantic Acquisition” immediately following the words “the
CityForest Conversion” in clause (ii) of the proviso thereof.


 


3

















 


5.             Amendment to Section 6.04. Section 6.04(k) of the Credit Agreement is hereby
amended by adding the words “, including the CityForest Acquisition and the
Atlantic Acquisition” after the words “Permitted Acquisitions”.


 


6.             Amendments to Section 6.08. Section 6.08(b)(ii) of the Credit Agreement is
hereby deleted and the following
provision substituted therefor:


 


“(ii)         payment of (A) regularly scheduled interest
and principal when due in respect of any Indebtedness (including the Senior
Secured Notes and the Additional Senior Secured Notes), other than payments in
respect of any Subordinated Indebtedness prohibited by the subordination
provisions thereof, and (B) interest and principal when due in respect of
the Atlantic Seller Note in accordance with the terms and conditions thereof,
other than payments prohibited by the subordination provisions thereof;”.


 


7.             Amendments to Section 6.09(j).  Section 6.09(j) of
the Credit Agreement is hereby amended by deleting all occurrences of the word “Sponsor”
and substituting therefor the words “Investor Group”.


 


8.             Amendments to Section 6.10.  Section 6.10 of
the Credit Agreement is hereby amended by deleting the existing clause (ii) and
substituting therefor the following:


 


“(ii) the foregoing shall not apply to
restrictions and conditions (x) existing on the date hereof identified on
Schedule 6.10 including the Senior Secured Notes Indenture (but shall apply to
any extension or renewal of, or any amendment or modification expanding the
scope of, any such restriction or condition (it being understood that the
Additional Senior Secured Notes will be subject to the same restrictions and
conditions as the Senior Secured Notes)), (y) contained in the Atlantic
Seller Note (but shall apply to any extension or renewal of, or any amendment
or modification expanding the scope of, any such restriction or condition) or (z) applying
to any Permitted Refinancing Indebtedness (so long as the applicable
restriction in the documentation for the Permitted Refinancing Indebtedness is
not materially more restrictive, when taken as a whole, than the applicable
restrictions in the Senior Secured Notes Indenture),”


 


9.             Amendments to Section 6.11.  Section 6.11 of
the Credit Agreement is hereby deleted and the following provision substituted
therefor:


 


“SECTION 6.11     Amendment of Material Documents. No Loan Party will, nor will it permit any Subsidiary to,
amend, modify or waive any of its rights under (a)  any agreement relating
to any Subordinated Indebtedness (including the Atlantic Seller Note or any
document executed in connection with the Indebtedness thereunder, other than
the Atlantic Acquisition Documentation), (b) its certificate of
incorporation, by-laws, operating, management or partnership agreement or other
organizational documents, (c) the Senior Secured Notes Indenture or any
document executed in connection therewith, (d) the Acquisition
Documentation, (e) the CityForest
Indenture, (f) the CityForest Bond Loan
Agreement, (g) the CityForest Acquisition Agreement, (h) the
Associated Bank Agreement and (i) the Atlantic Acquisition Documentation;
provided, that with respect to clauses (b) through (i) above,
such prohibition shall only apply to the extent that any such amendment,
modification or waiver would be materially adverse to the interests of the
Lenders.”


 


4

















 


10.           Schedule 3.15 to the Credit Agreement.  Schedule 3.15 to the
Credit Agreement is hereby supplemented with the information provided in
Schedule 1 attached to this Amendment.


 


11.           Conditions to Effectiveness. This
Amendment shall become effective on the date (the “Effective Date”) on
which the following conditions shall have been satisfied or waived:


 


(a)           the Administrative Agent shall have
received this Amendment, duly executed and delivered by the Loan Parties and
the Lender;


 


(b)           the Loan Parties shall have complied with Section 5.13
of the Credit Agreement, including the delivery by each Assetco of a Joinder
Agreement to the Administrative Agent;


 


(c)            the Administrative Agent shall have
received executed copies of (i) the Atlantic Acquisition Documentation,
the Atlantic Seller Note, the Atlantic Note Purchase Agreements and the
Atlantic Collateral Access Agreements, each certified by an officer of the
Borrower to be true and correct and in full force and effect as of the
Effective Date, and (ii) any payoff letter delivered under Section 6.1.6
of the Atlantic Acquisition Agreement;


 


(d)           the Administrative Agent shall have
received each document (including any
Uniform Commercial Code financing statement) required by the Collateral
Documents or under law or reasonably requested by the Administrative Agent to
be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on the
Collateral acquired pursuant to the Atlantic Acquisition to the extent required
by Section 5.13 of the Credit Agreement;


 


(e)           the Atlantic Acquisition shall have been
consummated in accordance with the Atlantic Acquisition Documentation;


 


(f)            the Administrative Agent shall have
received legal opinions from counsel to the Borrower and its Subsidiaries in
form and substance reasonably satisfactory to the Administrative Agent;


 


(g)           the Administrative Agent shall have
received such certificates as may be reasonably requested by the Administrative
Agent including confirmation that the Borrower is in compliance with the
requirements of Section 6.12 of the Credit Agreement both prior to and
immediately after drawdown;


 


(h)           the Administrative Agent shall have (i) received
and be satisfied with updated inventory appraisals in connection with the Acquisition
and (ii) conducted a satisfactory field examination of the accounts
receivable, inventory and related working capital matters and financial
information of Atlantic, including related data processing and other systems;
and


 


(i)            the Administrative Agent shall have
received evidence reasonably satisfactory to it that the Borrower shall have
received $36,900,000 in gross cash proceeds from the issuance of the Additional
Senior Secured Notes pursuant to the Atlantic Note Purchase Agreements.


 


12.           PNC Lockbox.  The Borrower hereby agrees to (a) cause
to be terminated as soon as reasonably practicable, and in no event later than July 11,
2008 (or such later date as the Administrative Agent may agree in its sole
discretion), the Post Office Box number 534378 held in the name of Atlantic
Paper & Foil, LLC located at PNC Bank, 1669 Phoenix Parkway, Suite 210, College Park, GA 30349 (the “PNC Lockbox”)
and (b) promptly transfer, or cause to be
transferred, any mail, checks or other items received after the date hereof in
connection with the PNC Lockbox to Post
Office Box number 533147 


 


5

















 


held in the
name of Cellu Tissue Corporation - Neenah located at JPMorgan Chase Bank, N.A.,
140 Charles Grant Parkway, First Floor, Atlanta, GA 30354. The Administrative
Agent will maintain a Reserve in an amount equal to $2,000,000 until it
receives evidence reasonably satisfactory to it that the PNC Lockbox has been
terminated.


 


13.           Counterparts. This Amendment may
be executed in any number of counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement.


 


14.           Representations and Warranties. The Borrower hereby represents and warrants to the Lenders
and the Administrative Agent as follows:


 


(a)           The Borrower has the corporate power and
authority and the legal right to execute, deliver and perform this Amendment
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Amendment. This Amendment has been duly
executed and delivered on behalf of the Borrower and constitutes the legal,
valid and binding obligation of the Borrower enforceable against the Borrower
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.


 


(b)           The representations and warranties of the
Borrower set forth in Article III of the Credit Agreement as amended
hereby are true and correct in all material respects as of the date hereof.


 


15.           Fees,
Costs and Expenses.  The Borrower agrees
to (i) pay to the Administrative Agent any arrangement fees previously
agreed in connection with this Amendment and (ii) reimburse the
Administrative Agent for all reasonable fees, costs and expenses incurred by it
in connection with this Amendment, including but not limited to the reasonable
fees, costs and expenses of counsel and any fees and expenses incurred in
connection with any appraisals and field examinations.


 


16.           Governing
Law.  This Amendment
and the rights and obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.


 


[Signature pages follow]


 


6

















 


IN WITNESS WHEREOF, the parties
hereto have caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first above written.


 


	
   

  	
  CELLU PAPER HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice
  President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE HOLDINGS,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice
  President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  INTERLAKE ACQUISITION
  CORPORATION

  LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice
  President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice
  President and Chief Financial 

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION – NATURAL DAM

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice
  President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION – NEENAH

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name: David J. Morris

  
	
   

  	
   

  	
  Title: Senior Vice President and Chief Financial

  Officer

  



 


Signature
Page to Second  Amendment


 


7

















 


	
   

  	
  COASTAL PAPER COMPANY

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Van Paper Company,

  
	
   

  	
   

  	
  its Managing Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris 

  
	
   

  	
   

  	
  Title:  Senior Vice President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  VAN PAPER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris 

  
	
   

  	
   

  	
  Title:  Senior Vice President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  VAN TIMBER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris 

  
	
   

  	
   

  	
  Title:  Senior Vice President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MENOMINEE ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris 

  
	
   

  	
   

  	
  Title:  Senior Vice President and Chief Financial

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE-CITYFOREST LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/David J. Morris

  
	
   

  	
   

  	
  Name:  David J. Morris 

  
	
   

  	
   

  	
  Title:  Senior Vice President
  and Chief Financial

  Officer

  



 


Signature
Page to Second  Amendment


 


8

















 


	
   

  	
  JPMORGAN CHASE BANK, N.A., individually, as US 

  Administrative Agent, Issuing Bank, Swingline Lender 

  and a Lender

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/John M. Hariaczyi

  
	
   

  	
   

  	
  Name:  John M. Hariaczyi

  
	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., TORONTO

  BRANCH, individually and as Canadian Administrative

  Agent and a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Michael N. Tam

  
	
   

  	
   

  	
  Name:  Michael N. Tam

  
	
   

  	
   

  	
  Title:  Senior Vice President

  



 


Signature
Page to Second  Amendment


 


9

















 


SCHEDULE
1


 


Cellu Tissue - Hauppauge, LLC 


Cellu Tissue - Thomaston, LLC


 


10